Question

13. Now assume that the market for JAMS is a Perfectly Competitive market and that demand in this market is given by Pd=300−1/2Qd. Further assume that Supply in this market is given by Ps=60+Qs

Now assume that Trendsetting Tavares owns one of the firms in the JAMS market and that his Marginal Cost and Total cost are as given below.

MC=60+4q          Total Cost=60q+2q^2

What is the marginal revenue on the 10th Pair of JAMS that Tavares produces?

Answer 1

Since the market is perfectly competitive if means that the firm is a price taker. Price is set at supply equalling demand. Next recall that a price taker firm faces a horizontal demand curve which implies that P=AR=MR. Based on the given question to find the Marginal Revenue for the 10th pair of JAMS that Tavares produces we can simply find the price in the market and that will equal our Marginal Revenue. For PC firm the marginal revenue is constant at P=MR.

Let's equate supply and demand to obtain price.

D: P=300-1/2Q

S: P=60+Q

(Qs=Qd and Pd=Ps at equilibrium)

D=S implies

300-1/2Q = 60+Q

240 = 3/2Q

Q = 480/3 = 160

So P= 60+160 = 220 (which equals MR)

So for 10th pair of JAMS, MR=220 (or for any other quantity as well this will be the MR)